Scott Schoen of THL Capital: Deals Will Return

DUBAI (Reuters) – Private equity can still make “good money” in a less leveraged world, but firms have to be patient to wait for deals to return, said Scott Schoen, a top executive at Boston-based buyout firm Thomas H Lee.

THL, one of the biggest U.S. private equity firms, was behind deals in the boom period such as the $17.9 billion takeover of U.S. radio giant Clear Channel Communications.

But buyout firms have been hammered by the credit crisis, which a year ago put a dramatic stop to their ability to do large buyouts. That came to a total halt in the past weeks.

Schoen, speaking at the Super Return private equity conference in Dubai, said it would take some time for dealflow to restart, adding, “we’re realists” and not to expect “elephant public-to-privates.”

He said in this period it was important to resist “style drift,” such as giving up the “core private equity value-added premise of executing control.”

Some minority stake deals, such as rival TPG’s $1.35 billion bet on Washington Mutual, have gone badly wrong.

Schoen added that achieving the returns of the past would be difficult.

“It’s going to be extremely difficult to deliver the kind of returns in the past when you’re selling into a lower priced environment,” said Schoen.

As the credit crisis extended and worsened, big pension funds that put money into private equity funds have grown increasingly concerned about returns on their investments.

Private equity firms are having problems exiting deals as well as finding new ones. Exits are key to realizing returns and delivering money back to the investors, but few are willing to sell during the market crash, while buyers with capital are scarce.

By Megan Davies
(Editing by Steve Orlofsky)